Industry Market Trends

Geothermal: Good for Around the Home and Beyond?

Apr 20, 2012

My wife's brother recently visited us in New Zealand and talked about how he'd sold his lumber business and was getting into geothermal. As in, installing geothermal heating systems for homes.

Living in the Canadian Rockies in Golden, B.C., as he does, it makes sense, since homeowners can see ROI in four to five years. Not to use this column to plug my brother-in-law's business, but if that's the case that's a serious value proposition.

So I decided to look into geothermal a bit more. Evidently, as the name might suggest, it's using earth-heat -- taking the heat that already exists in the earth and piping it to the surface to heat homes and other buildings. The deeper you go in the earth, the hotter temperatures you find. And it's not just digging a few feet below the surface; we're talking a fairly involved drilling operation.

As the Canadian Geothermal Energy Association explains it, "Geothermal energy uses the escaping heat from Earth's core as a means to heat water and produce electricity." Oversimplifying grossly, the hot water is what used to heat homes and other buildings via a heat pump. And in the summer, the same system can pull heat from your home and put it back in the ground, to cool your house.

Geothermal: The Advantages

It's easy to spot the advantages of geothermal, mainly since Googling "advantages of geothermal" brings back copious results. Typical of lists extolling the selling points of geothermal is this, from Yahoo! Voices, which mentions, among other advantages, the fact that the Earth is fairly plentiful in the typical places one would build a house.

Not to say geothermal is always right there next to the surface. There are places where it's fairly easy to access, and others where you'd need to do some serious drilling to get usable amounts. It's not economically feasible everywhere -- my brother-in-law will give quotes over the phone to projects sight unseen, but always goes out to see the area for himself to determine if he's going to run into serious expense.

It's also fairly clean as energy sources go, there isn't really any waste, any polluting effects, no birds are killed, no huge, ugly, expensive panels required. Like wind and sun, geothermal isn't going to run out anytime soon. Of course, oil and natural gas aren't either, but that's a different column. You don't have to buy geothermal by the barrel from a bunch of Middle East dictatorships, as you can drill your own. That's a pretty clear advantage.

And you don't have to worry about cloudy or non-windy days with geothermal. The Earth's heat is pretty much always there 24/7. Put it this way: If there isn't any more geothermal, heating your house is going to be one of your lesser concerns that day.

Yes, there is some variation in steam pressure levels, but as the Yahoo! piece notes, "pumps can be used to inject water back into hot rock to generate more steam." As long as it doesn't cause earthquakes, which geothermal has been blamed for on occasion. And building geothermal power plants is a highly efficient proposition, as they only need to pump water, and they can even create the energy to do this themselves. No building dams, mining coal, messing around with uranium or the like.

Not A Bustling Industry, Though

I asked my brother-in-law how business was going. Pretty good, he said. He's a one-man operation, basically, using contract labor for the job site. "It's too much work for one guy, though," he admitted, adding, however, that "there isn't quite enough to hire another full-time guy."

In fact, much of what's keeping his small business going is doing repair and maintenance work on existing geothermal installations built by companies that have since gone out of business.

Evidently, for all its advantages, geothermal is having a hard time getting much traction as an industry. Last year, Reuters reported that the Toronto Stock Exchange -- the most important stock exchange for geothermal right now -- has seen shares of geothermal companies Magma Energy, Ram Power and US Geothermal losing "between 20 percent and 50 percent of their value," and company officials bemoan the difficulty raising capital.

In fact, John Segrich, portfolio manager of Gabelli SRI Green Fund, a New York-based fund investing in sustainable businesses, told Reuters in March 2011 that "we think it is more of a niche technology at this point." It certainly is "niche," with about 0.3% of the world's electricity currently produced by geothermal.

Slow, Complicated and Expensive. But Other Than That...

This brings up the first problem with such a promising idea as simply taking the heat existing in the ground already and using it on the surface: Expansion, "adding megawatts," is what Reuters described as "a slow, technically complex and expensive process."

To get geothermal working, you have to "drill, baby, drill," then drill some more. That's expensive. And in some places, it's a lot harder drilling to reach sufficient amounts of geothermal than it is in other places like Indonesia, Japan, Hawaii or New Zealand, or the United States, which has probably the world's best proven geothermal reserves.

In practice, geothermal is much more like mining than solar or wind power. And mining is capital intensive: "It can take five to seven years from discovery to commercial operation. By comparison, a wind or solar farm can be up and running from scratch in a year to 18 month," Reuters notes. Solar or wind stocks can pay off relatively quickly, whereas geothermal takes years to pay off.

It works best in places with a lot of volcanoes. Iceland is particularly suited for the technology, and Hawaii, New Zealand, Japan and Indonesia aren't far behind in terms of mapped geothermal fields ripe for use. Iceland gets roughly a quarter of its electricity from geothermal and 87 percent of its buildings and homes are heated by geothermal, by far the highest percentage of any country today. New Zealand gets about 10 percent of its electricity from geothermal.

In terms of sheer numbers, the U.S. has the most geothermal production, with over 3,000 megawatts of capacity from around 65 operating geothermal power plants, but it supplies a tiny fraction of the country's electricity needs.

Geothermal vs. Bathing

And geothermal runs up against some more bizarre roadblocks in places where it should be far more popular, such as Japan, desperately scrabbling about for an alternative to nuclear power in its resource-free country. In The Telegraph a few months ago, Danielle Demetriou wrote that although Japan is the unquestioned leader in producing geothermal technology, with more than 70 percent market share, the industry heavyweight Fuji Electric is involved in the world's biggest geothermal power plant -- in New Zealand.

Demetriou credits -- or blames -- bathing for the lack of uptake of geothermal in Japan. It seems the country's geothermal reserves are already spoken for: "The act of bathing in natural volcanic hot spring onsen is deeply embedded in Japanese culture - and has resulted in an onsen industry which is fiercely protected," including over 28,000 hot springs protected by layers of government anti-development regulations. The recent nuclear unpleasantries in Japan have provoked some rethinking of priorities, but change is still years off.

Ah Yes, The Drawbacks: Backup Needed

And there are the drawbacks to geothermal. Alexandra Marks, a fan of geothermal writing in the Christian Science Monitor, notes the same thing my brother-in-law says: it's expensive, a lot more expensive than simply installing a conventional heating system. Some places offer tax breaks and other incentives for installing geothermal, but they're not common.

And the deep, dark, dirty secret of geothermal is that, frankly, you always need a backup system.

As Marks writes, a geothermal system needs a compressor to circulate heat, as does an air conditioning system. When a compressor fails on a geothermal system, you don't have any heat in your house. And since it would be expected to fail at the coldest times, when it's working the hardest, the need to have a backup system to keep you from freezing is acute. And some less-efficient systems need a backup to handle really cold temperatures in the first place.

And yes, there is some regularly scheduled maintenance you need to have done on your geothermal system, but you need that on any heating system -- we heat using a fireplace and even that needs the chimney cleaned every now and then. Good thing our son is so thin, really holds the costs down. (Just kidding. Honestly. He hasn't been thin enough to clean the chimney for a couple years now.)

Bottom line, if it works in your location to use geothermal heat for your house, if you plan on being in the house for at least 10 years, it's probably worth your while to at least get some guy out to give a quote for installing a geothermal system, see if it's feasible. Just don't expect to have your electricity generated by geothermal anytime soon.